Desk Report,
Iran-Israel war: What impact could it have on the global economy?
Deadly attacks and counterattacks are ongoing for the fifth consecutive day between Israel and Iran. In this situation, there is a growing fear that this conflict may spread to other countries in the Middle East. The specialty of this region is that it is one of the main oil and gas production centers in the world. As a result, the fear is increasing.
Iran-Israel war: What impact could it have on the global economy?
After the Russia-Ukraine war broke out in 2022, the West imposed various sanctions on the Russian oil trade. Due to that sanction, fuel oil prices rose worldwide. With it, inflation increased. As a result, there is concern about what will happen if war breaks out in oil-rich regions again. Al-Jazeera reports.
The point is that the main fuel for economic production is oil. As a result, if oil prices increase, production costs also increase. This ultimately affects consumers, especially in the case of energy-dependent products such as food, clothing and chemicals. If this conflict lasts for a long time, oil-importing countries around the world will once again face high inflation. Then the growth rate may slow down again.
With this situation in mind, analysts are warning that the policy freedom of central banks to control inflation may be limited. Central bankers of the rich G-7 countries are on the path of cutting interest rates. At this moment, a sudden major shock to energy prices would be worrisome. Oil prices in the world market have already increased by about 10 percent since the Israeli attack began last Friday. If the situation worsens, oil prices could exceed $100 per barrel, which is the main concern.
The UK central bank recently lowered the country’s policy interest rate to 4.25 percent. However, since US President Trump came to power again in January, the US Federal Reserve has not yet taken steps to cut interest rates. Now, if oil prices continue to rise, they will not follow that path.
High policy interest rates have already slowed down the growth rate in the past few years, the main reason for which was the increase in oil prices. Now, if oil prices rise again, the situation will deteriorate further.
